Sep 14, 2022 - Economy

The Merge for Ethereum is 2022's second biggest crypto event

Illustration of the Ethereum wearing 2022 glasses, surrounded by confetti.

Illustration: Allie Carl/Axios

The biggest event in crypto this year was the market crashing in May. Tonight, when (and if) the Ethereum blockchain successfully pivots to proof-of-stake, that will be easily the second.

Why it matters: Above and beyond the supposed climate implications, The Merge showed that a giant, dispersed and leaderless community could come to consensus and pull off a complex re-engineering of an enormous, decentralized network.

State of play: We broke down The Merge previously, but, big picture, it's a switch in the blockchain's security model. You've got this big distributed network, and every few seconds everyone needs to agree that — however stuff moved around — everything has moved fairly.

  • Fine, so this new security model will require a lot less electricity, and that's nice. But what did it take to get here?
  • First, this has been under consideration for a very long time. We thought the switch might be "soon" back when Ethereum was three years old, in 2018.

While Ethereum tested and re-tested and debated making the change, many other crypto networks went ahead and launched with proof-of-stake from the start. Networks like Solana, Avalanche and Tezos.

  • While it might have seemed like they were pulling an end run, in fact they were more serving as test networks that Ethereum could watch and learn from.
  • All those networks are now worth millions, but still not nearly so much as the chain they all imitate.

What it took: Getting to The Merge was not as simple as writing and testing the code.

  • It took updates. Lots of decentralized node operators actually had to update their code — none of these people are employees of Ethereum. That's not how Ethereum works. If all these independent network users all over the world hadn't upgraded their software to the latest version, The Merge wouldn't have worked.
  • It took education. The community had to buy in that this makes sense. This took lots of podcasts, writing, conferences, Twitter threads and face to face meetings for influential people in the Ethereum world to take it upon themselves to make the case for a new version.
  • It took sacrifice. Millions — maybe billions — of dollars worth of GPUs are about to become mostly useless as the data farms that have been running the proof-of-work system for Ethereum wind down.
  • It took risk. Could something go wrong? Oh yes. That said, to say that they have tested and re-tested the transition is a wild understatement.

If the community hadn't bought in and the code hadn't been updated, then everyone would keep running on Ethereum Proof-of-Work when disgruntled miners fire that up after The Merge.

  • But that's not going to happen, because people do buy in. The consensus of users is what makes a cryptocurrency.

By the numbers: As all markets crashed yesterday, ether's value relative to bitcoin rose (though ether also fell, hard), suggesting the market knows something special is happening with Ethereum.

💭 Our thought bubble: This is a moment to consider the funny way history works. In 20 years, if cryptocurrency really does do to financial markets what the web did to publishing, this year's market crash will be an afterthought and 2022 likely will simply be remembered as the year of The Merge.

  • But right here, right now, with as many people who lost as much money as they did in May, the bear market beginning is still this year's biggest news.
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